How China ETFs Have Sidestepped a Hard Landing

February 2nd at 6:00am by Tom Lydon

Exchange traded funds tracking China have rallied in 2012 and moved above the 200-day average on hopes officials have engineered a soft landing for the economy.

China has lowered bank reserve requirements and kept interest rates low in an effort to stimulate the economy and its markets.

“There are a number of issues that could weigh on Chinese equities in the near term, the most significant being slowing exports due to weakening global growth. In November 2011, the Chinese manufacturing sector contracted for the first time in nearly three years, which reflected declines in both export orders and new domestic orders,” John Gabriel for Morningstar wrote in an analyst report. [China ETFs: Year of the Dragon?]

The latest moves by the Chinese government to lower the reserve requirement ratio for banks by 50 basis points is indicative that the government is dedicated to maintaining high single digit GDP growth, adds Gabriel. [China ETFs Bolstered by Reserve Cut]

For the near future, the Chinese government must tackle stimulating domestic growth without creating any new asset bubbles, exert control over the yuan’s exchange rate and maintain stability and balance within the real estate and banking sectors.

Chinese focused equities and ETFs are still good diversification tools within a portfolio because China is the second largest economy in the world and growth will still outpace that of the developed world for the near term. Appreciation of the Chinese yuan is also likely as the economy continues to grow. [Lower Inflation Gives China ETFs Breathing Room]

This week, the World Bank gave its forecast for the growth in the Chinese economy to be at 8.4% in 2012, reports Paul Baiocchi for Nasdaq. And bear in mind that despite the global growth slowdown and amid the Eurozone’s debt crisis, the Chinese economy still managed to grow 9.2% in 2011.

Chinese focused ETFs:

  • PowerShares Golden Dragon Halter USX China Portfolio (NYSEArca: PGJ)
  • iShares FTSE Xinhua China 25 Index Fund (NYSEArca: FXI)
  • SPDR S&P China ETF (NYSEArca: GXC)
  • Guggenheim China Small Cap Fund (NYSEArca: HAO)

iShares FTSE Xinhua China 25 Index Fund


Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.